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Australia: Media attention September 28, 2006

Posted by Jasper in Uncategorized.
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I have seldom experienced a more hectic and gossip filled news coverage of the telco market than here in Australia during the past week or so. It all started late last week when the government (which holds 51.8% of the stock in Telstra) announced it support for the nomination of Geoff Cousins as a director of Telstra. On the same day CEO of Telstra Sol Mr Trujillo was heavily criticised on SBS’s Dateline program for failing to deliver basic services while acting of chief of US West. This week Sol Trujillo responded that his board could not support Mr Cousins’ appointment. And then the mudslinging started.

Just today the Australian ran a story with the appetizer: TELSTRA chief executive Sol Trujillo paid US management consultants $54 million to work on a strategic plan that ultimately earned him a personal bonus of $1.5 million.

And Crickey was quick to pick up and run with the story:

…According to The Australian, Bain was hired by Trujillo “within days of his taking over as chief executive.” Because Bain has no significant Australian presence, it was forced to fly consultants from Singapore, the US and Europe in business class, and pay for five-star accommodation while they were in Australia. While some companies would have hired local consultants at less expense, according to The Australian, Trujillo allegedly opted for Bain as he had previously worked with its Amsterdam-based partner, Andrew Klein.

Crikey spoke to several consultants who confirmed that local mid-tier consulting firms (including Accenture, Bearing Point, Cap Gemini and IBM) would charge a blended rate of around $4,000 per day per consultant for such a review (for example, a VP will charge around $6,500 per day while an entry level consultant will be around $1,200 per day). Bain, as a leading strategic consultant may be able to charge a slight premium, resulting in a blended rate of perhaps $9,000 per day.

Trujillo appointed Bain in early July 2005, with the strategic review being released to the market on 15 November – meaning that Bain would have worked on the review for around 120 days. At a total cost of $54 million, that means Telstra spent approximately $450,000 per day on consultants alone. One source suggested that around 10 to 20 consultants would be required for such a review, meaning that Trujillo paid his alleged ‘mates’ at Bain around four to five times the amount he could have paid a highly regarded, Melbourne-based consultancy like Accenture.

Telstra shareholders would be justified in wondering why on earth they are paying their CEO millions of dollars in fixed, short-term and ‘sign-on’ bonus payments when within days of being appointed, he just hires an overpriced outsider to do his job.

Could the real story be that the Government got wind of this extravagance, decided enough is enough, and nominated head-kicker Geoffrey Cousins for the board?

Okay, so the numbers provided by Crickey don’t seem to stack up. For example, assuming a daily rate of 11,000 per consultant (2,000 per day to take account of accommodation and travel) we would need 40 consultants to carry out the review within 120 days. Nevertheless, I can’t wait to see what will be in the papers tomorrow.

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